Canada Pension Plan’s move
into distressed debt is latest step
on long road

TORONTO — 10 years after its launch, the Canada Pension Plan Investment Board barely resembles its early incarnation.

The now C$122.7 billion (US$121.6 billion) fund not only is diversified by investment class, but also by region, and it is a leader for responsible investing in Canada.

As of March 31, equities represented 62.7% of the fund — 51.8% in public equities and 10.9% in private equities. Fixed income represented 24.3% of total assets; inflation-sensitive assets (including real estate and inflation-linked bonds), 11.7%; and absolute-return strategies, 1.3 %,

At the end of its fiscal year on March 31, 53% of the portfolio was invested in Canada and 47% outside its borders.

The Canada Pension Plan was started in 1966. However by 1996, it had become apparent that the then C$11 billion plan, which was 100% invested in government bonds, was not sustainable, so the CPP Investment Board was incorporated in December 1997.

The fund’s growth has led the board’s staff — along with 45 recently hired investment professionals — to expand its mandate to include distressed debt and other alternatives.

“We’re moving into fixed income in various forms,” said Ian Dale, senior vice president communications and stakeholder relations. “We’re building up our internal capability to run a global fixed-income portfolio.”

“We’ve been diversifying this portfolio over the last number of years. We started out with government bonds. Then we were diversifying into public equity, private equity and then, real estate and infrastructure and then, fixed income. Those are the five major steps,” Mr. Dale said.

“Within that fixed-income focus, we would also look at global bond capability, private debt and also at some debt related to real estate” he added.

The fund’s private equity deals are global. Earlier this year, the CPPIB attempted to purchase a stake in New Zealand’s Auckland Airport. Despite garnering shareholder approval, the New Zealand government squashed the deal over concerns surrounding foreign ownership.

The CPPIB will continue to look for new opportunities in emerging markets, Mr. Dale said.

Going global

Earlier this year, the CPPIB announced it was opening an office in Hong Kong to source opportunities in North Asia, and made a C$200 million co-investment in Fountain Vest, a newly established private equity fund focused on investing in private enterprises in China.

“Our objective is to be a more active, value-added investor seeking opportunities in global markets,” said David Denison, president and chief executive of the CPPIB in a speech June 2. “This strategy plays to our inherent strengths of size and a long investment horizon.”

He also outlined initiatives being taken by the board in the area of responsible investing, and reaffirmed the board’s commitment to the area.

The CPPIB first adopted its Policy on Responsible Investing in late 2005. The policy reflects the belief that the board’s commitment to responsible corporate behavior with respect to environmental, social and governance — or ESG — factors can have a positive influence on long-term financial performance.

The core elements of the policy are first, engagement with those companies through proxy voting, working with investor coalitions and direct contact; second, supporting research into the long-term materiality of ESG factors; and third, integrating ESG factors into the investment process.

This past February, the CPPIB encouraged Canada’s 200 largest public companies to improve disclosure on climate-related risks, by responding to the Carbon Disclosure Project’s questionnaire. Mailed to more than 3,000 companies worldwide, the questionnaire asks companies to measure and disclose their greenhouse gas emissions and report on strategy for dealing with risks and opportunities associated with climate change.

The CPP Investment Board is a signatory to the CDP and sponsor of the CDP Canada Report, which recognizes leading practices by Canadian companies regarding transparency on climate change related risks.